For many people, the thought of acquiring a plane is appealing through an aircraft loan. Whether you’re looking for an investment or personal use and regardless of financing, it will be by yourself or with help from someone else.
You should know that there are certain questions all buyers need to answer before they can make their purchase decisions: “What type of aircraft do I want?” “How much money am I able to put down?” and “what other financial investments do I have in mind (i.e., home equity)? And how long does it take?”
The amount of money one must spend on an airplane can be daunting, but some lenders specialize in financing or have dedicated divisions for aircraft.
Finding the best financing option for your aircraft can be a daunting task. In this article, we’ll cover some questions to ask when exploring different types of aircraft loans.
And how they could work with your specific needs as well as what tax advantages may exist in terms of financing an airplane purchase or lease agreement on one type versus another so that it’s easier than ever before making purchasing decisions.
Ways You Can Acquire an Aircraft
Rising financial markets, growing corporate earnings, and a strong U.S dollar are driving demand for private aircraft as new buyers enter the market with more money than ever before to spend on luxury goods like planes.
Private aviation is a cost-effective and efficient solution to the problems associated with commercial air travel. With crowded airports, jam-packed aircraft, or delays, high net worth individuals can take advantage of smaller fields located closer than would otherwise be possible for them to avoid these inconveniences when traveling by plane.
Consider these financing options before ringing the airplane broker and kicking tires:
1. Traditional Loans
No different than your traditional purchases – houses, cars, and boats- when you buy an aircraft, it can be a fixed rate or floating. Some financial institutions offer hybrids such as loans that have options to buy “swaps” to make sure they’re always able to get the best possible price on their next loan.
If you need to borrow money, there are many different options for doing so. One of the most popular types is a mortgage loan with terms ranging from 30 months to 120 or even 240 amortizations depending on your needs and preferences.
With longer terms, rates are generally higher. It can be troubling if you’re not sure how to manage your finances wisely and could end up paying more than necessary for the item.
2. Asset-Based Loans
In recent years, asset-based loans have become more popular as a choice for those looking to own aircraft without making financial disclosures or guarantees.
It is no surprise that this product is rare. It offers several benefits, including:
- No financial disclosures or covenants – a truly hassle-free way of financing your company. It does not require any tax returns or K1s from past years as collateral for disclosure purposes.
- No or limited personal guaranties – Achieving a good credit score can be difficult, but it is essential for companies that have bonding requirements or covenants limiting the amount of debt. Multiple partners may be involved in owning an entity, and some owners might not want another partner’s guarantee on their loan either.
- Non-recourse – If a borrower defaults on their loan, the lender can repossess the plane but cannot seek out further compensation.
3. Aircraft Lease
Businesses may lease an aircraft to get more value out of it than they would if they purchase. A business’ reasons for leasing could include cash flow, income tax considerations and sales taxes, and accounting treatment.
There are three types of leases that you can choose from depending on the type and frequency with which your aircraft will be used. These include:
- Non-Tax Leases – The lessee owns the asset for tax purposes. This option will be put in place, and it allows them to take advantage of their “appetite” or desire on how much they want depreciation out of each aircraft which can lead to other benefits. Like lower income taxes because you are using more money from your deductions.
- Tax Leases – The aircraft is not treated as an asset on the balance sheet. So it can take advantage of tax benefits. The lessee has a “business” use for this plane and will only fly them to avoid paying out more than they earn in profits or losses each year through depreciation expenses.
Ready For Loan Take Off
To purchase an aircraft, you must first know what it is that interests or captures your attention. The process of aircraft loans can be overwhelming for some people because there are so many things involved in making this choice and knowing the laws governing them all.
When you’re ready to take the next step towards purchasing a private aircraft for your business, it goes much smoother when working with experienced professional jet financing experts.